facilitate the administration of the construction subsidy provisions of the act, because the Commission would have actual foreign bids for use in estimating foreign costs.

As had been anticipated, considerable difficulty was encountered in connection with the vessel to be built for the United States Lines. In this case, it was found that there is actually under construction in the Netherlands a ship of remarkable similarity to the MC design. Still, it would clearly have been desirable to have had actual foreign bids on the specific plans on which the domestic yards were bidding, both for the purpose of establishing the differential and for the purpose of indicating the general price trend in the international market. Such data can be obtained only if it is made possible for an award to be made, under certain conditions, to a foreign bidder.

In connection with this question of excessive bids, it is suggested that it might be well to add a provision to the act enabling the Commission, in its discretion, to allow construction abroad in cases where the foreign cost is between 3313 percent and 50 percent less than the American price, and the bids received from domestic yards are believed to be unreasonable, excessive, or collusive. Such vessels would likewise be entitled to registration and documentation under our flag and to operating-differential subsidies as previously suggested. The Commission recommends that section 502 (b) be amended accordingly.

Our proposal to build ships in the international market, under certain circumstances, is no new practice among maritime nations. It is no new practice in the United States. It is quite possible for an American citizen to go into the international tonnage market for equipment with which to compete in international trade, but under existing law we cannot grant him an operating subsidy on such equipment. We believe that, under conditions which I have already explained, and in the public interest, the subsidized operator should have the same privilege.

But

No maritime nation restricts its shipping industry solely to domestic-built vessels. All maritime nations seek, so far as possible, to restrict subsidized vessels to their national tonnage markets. all such nations, except the United States, have provisions which authorize operators, under certain circumstances, to seek replacement for their subsidized fleets in the international tonnage market. Aircraft: Congress directed the Commission, in section 211 (g) of the Merchant Marine Act, 1936, to determine what provisions of the act and other acts relating to shipping should be made applicable to aircraft engaged in foreign commerce. The Commission was also directed to recommend appropriate legislation.

The directions of Congress have been partially carried out by the Commission. A special report, prepared with expert assistance and after consultation with shippers, passengers, steamship and aircraft operators, and aircraft manufacturers, has already been prepared and furnished to the Members of Congress.

Overocean air transportation is at present important and potentially vital to the foreign trade of the United States. This is a field in which we now enjoy a tremendous advantage in experience, equipment, and personnel. This advantage, however, may be lost within a few years-if not a few months-for the speed of the industry's development is comparable only to the speed of the planes themselves.

This country, by its failure to realize the importance of steam and steel, brought about the decline of a once-powerful merchant marine. We should not abandon our leadership in air commerce by failing to make proper provision for Government support of overocean flying. The question presented is not whether overocean flying should be subsidized, for it is subsidized now. A substantial portion of payments for the transportation of domestic air mail represents a subsidy to domestic air carriers. A computation based upon the cost ascertainment report of the Post Office Department shows that the rate per pound-mile paid for the transportation of foreign air mail actually carried, is 11.6 times as much as the average rate for domestic air mail for 1936; it is more than 20 times as much as the average rate paid the three transcontinental domestic lines-American Airlines, Inc., United Air Lines Transport Corporation, and Transcontinental & Western Air, Inc.-during the first 6 months of 1937. It appears, therefore, that a substantial subsidy is now being paid for the development of over-ocean flying. If any subsidy is to be paid, it should not be through what has been referred to by Congress and by the President as a "subterfuge."

It goes without saying that the factors which determine the essentiality of ocean transport services are the same factors which should also determine the essentiality of foreign air-transport services, for both services must draw their principal support from traffic. It is apparent, moreover, that the well-developed foreign-trade service of the future will be an integrated air-water service, fast passenger traffic and express traveling by air and slow passenger traffic and heavy cargo traveling by water over substantially the same routes. Such an integrated service would, in the opinion of the Commission, be superior to and far less costly than the superliner services with which other nations have sought to meet the need for increased speed in transoceanic transport.

While the Commission does not desire to add to its already pressing problems, it is forced to conclude that the development of transoceanic transport-with which development the Commission is already charged by Congress-logically includes the development of air transport as well as transportation by water. It follows that the development of both forms of overseas transportation should be vested in the same agency. Congress, of course, must determine the agency to which it wishes to entrust this task.

The objections to a mail subsidy to the merchant marine, which were so obvious as to cause Congress to abandon the ocean-mail contract system, apply with equal force to air transport. The mistakes which were made, and the resulting chaotic condition of the American merchant marine, can be prevented with respect to foreign air transport by providing for its proper administration now. A representative of the Post Office Department told these committees, when the Merchant Marine Act, 1936, was being framed, that: "The question of a United States merchant marine is a question that is way beyond the province of the Post Office Department. Our interest is primarily in the handling and the carriage of mails." The statement is equally applicable to overocean transportation by air. There is, of course, no sound analogy between overseas flying and domestic air transport. The problems of overocean transport are those of foreign trade.

The Commission feels that it is the agency of Government which has been charged with the development of overseas transportation, and that it is equipped with the information and personnel necessary to accomplish this task. As air transport is of rapidly increasing importance to this development, the Commission believes that the Merchant Marine Act should be broadened to make aircraft engaged in overseas commerce eligible for the aid given to shipping in the present Merchant Marine Act.

The present need, of course, is not for construction-differential and operating-differential subsidies, but for assistance in the initial financing of aeronautical enterprises. The cost of such financing is heavy, but it is believed that it will pay dividends to the Government to assist at this time in the establishment of air trade routes which will benefit our commerce. It may be pointed out, too, that should foreign manufacturers turn from military aircraft to the production of commercial aircraft, the lower costs of labor prevailing in foreign countries may give rise to a construction differential which it would be necessary for this Government to meet.

If the Government is to take action in this field, it should do so immediately. England, Germany, and France are not only engaged in vigorous and extensive programs for the development of air trade routes, but these programs are tied in with shipping, particularly in the case of Germany and France. The most recent example of this is the new air line, almost 2,000 miles long, along the west coast of Africa from Dakar south, which was created and is being operated by the old Fabre Steamship Line, now called Chargeuers Re-Unis. It is entirely independent of the French national air line, Air France. For its air operations this steamship line ordered a fleet of American Sikorsky Clippers of the S-43 type. This is only one of many indications that unless this country enacts legislation to advance American interests in the foreign air transportation field, we will see it preempted by our foreign competitors.

In the event that this task is imposed by Congress upon the Commission, the Commission will, of course, apply the same rules of sound business and rigid economy which it applies to ocean-going shipping. The Commission does not wish to be regarded as presenting a request for the enlargement of its powers. It is merely reporting to Congress, as it was directed to do by the Merchant Marine Act; the Commission is recommending also, as directed by the act, the enactment of legislation applicable to aircraft engaged in overseas foreign commerce which, it is felt, will more effectively further the policy of the Merchant Marine Act of 1936.

Labor-mediation: Perhaps the most difficult problem with which the Commission is confronted is an unfortunate employer-employee relationship which has resulted in destructive disturbances in the shipping industry. Unless something can be done to stabilize those relationships, to reduce interunion friction, to increase the efficiency of crews and to restore order and discipline aboard our ships, all of the Government's efforts to develop a strong American merchant marine will be futile.

It need not be pointed out to these committees that the major part of all subsidies granted American shipowners is accounted for by the greater labor cost of operating ships under the American flag. Under the present temporary agreements, the Government is paying 43

percent of the total cost of wages and of crews' subsistence on subsidized vessels. Sixty-four percent of every operating-differential subsidy dollar now being paid goes directly to the seamen in the form of wages and subsistence. The public, therefore, has a vital interest in labor disputes. Congress might well consider whether it proposes to spend large sums in promoting an American merchant marine and to countenance, meanwhile, the continued disruption of shipping services by disputes.

The Commission believes that some definite step should be taken to stabilize the situation. Various possible courses of action are, of course, open for consideration. For example, we could go along as we are now. However, the jurisdiction of the National Labor Relations Board is not believed to be sufficiently extensive to meet all of the problems which arise. That board is primarily concerned with safeguarding the right of employees to organize and select their own representatives for the purpose of collective bargaining. If no further provision is made for the handling of labor disputes in the shipping industry, conditions will probably remain as chaotic as they are at the present time.

Another possibility would be to give the Maritime Commission jurisdiction over such problems. However, there are obvious objections to that procedure. The Maritime Commission is the agency through which subsidies are granted both for the construction of vessels and for their operation. The Commission is also engaged in the shipping industry as an owner of vessels and, therefore, as an employer of labor.

Another possibility is the use of the conciliation services of the Department of Labor. However, that service can function only when invited to do so when its services are acceptable to both parties. It thus appears to have definite limitations as an agency for the stabilization of labor disputes in this field.

A further possibility would be the establishment of an agency similar to the National Mediation Board, which has operated so successfully in the field of railway labor relations, or the granting of authority to the National Mediation Board to handle labor disputes for the maritime industry.

After examining these various possibilities the Maritime Commission believes that the most practical method of attempting to alleviate the unrest in the maritime industry is to provide for the application of the mediation principles of the Railway Labor Act. We believe that such action is desirable at this time. I should like to add, however, that this suggestion is not offered as the only possible solution for the problem; if any other plan is suggested it should receive the most careful consideration.

Perhaps the most significant thing about the Railway Labor Act is the policy which it lays down for the guidance of the railway managements and their employees. This policy as set forth in the act, is simple and to the point:

It shall be the duty of all carriers, their officers, agents, and employees to exert every reasonable effort to make and maintain agreements concerning rates of pay, rules, and working conditions, and to settle all disputes, whether arising out of the application of such agreements or otherwise, in order to avoid any interruption to commerce or to the operation of any carrier growing out of any dispute between the carrier and the employees thereof.

This policy, it will be seen, emphasizes the making and maintaining of agreements between labor and management to govern their relationship. It safeguards the right of employees and managements respectively to associate themselves together as they see fitthat is, without influence, interference, or coercion on the part of one over the other.

Inasmuch as the National Labor Relations Board has already been granted jurisdiction over questions growing out of unfair labor practices, freedom of association and representation for purposes of collective bargaining in the maritime industry, and has already begun to issue certificates of labor representation, it is felt that it would be unnecessary to grant similar jurisdiction to the National Mediation Board. If a dispute arises among the employees of a water carrier as to representatives, the services of the National Labor Relations Board may be invoked for the purpose of investigating the dispute and determining who should represent the employees. From that point forward, the principles of the Railway Labor Act, as amended, would appear to be well adapted for application to the shipping industry.

One very important feature of the act, in keeping with its basic purpose to further collective-bargaining agreements, calls for the serving of written notices, by one party on the other, of a desire to make a new agreement or to make changes in existing agreements. Such notices must be acknowledged within 10 days, and within 30 days conferences must begin for purposes of negotiating the new agreement or the proposed changes. This is an exceedingly important part of the procedure under the act, because it prevents the unreasonable delays about which the maritime unions are now complaining. The act lays down three major steps to be followed in the process of making and maintaining agreements. The first is direct negotiation between duly accredited or certified representatives of the railroads. The conferees, while in negotiation, are required to make a serious and determined effort to adjust their differences; that is, to bargain collectively within the accepted meaning of that term.

If the issues in question cannot be adjusted by direct negotiation, either or both parties may invoke the services of the National Mediation Board. If necessary, the Board, of its own accord, may proffer its services. In any case, it is important to note that both sides are still bound to keep the peace.

The third important step in the making and maintenance of labor agreements involves arbitration. If direct negotiations do not result in an agreement, and mediation proves unsuccessful in whole or in part, both parties may agree to arbitrate their differences. Arbitration is not compulsory, but in the event the parties to the dispute do sign a voluntary contract to arbitrate the remaining issues, the resulting award is final and binding upon both for 1 year. All proceedings before an arbitration board are formal. Testimony is taken under oath, and the resulting awards are filed with the district court.

In the experience gained in administration of the Railway Labor Act, it has been discovered that the three steps outlined above result in a gradual narrowing down of the issues in dispute. Direct negotiations, if not entirely successful, tend to bring about agreement on at least some of the questions involved. When direct negotiations are